The Manager of the Finishing Department Is Concerned About How

question 165

Essay

The manager of the Finishing Department is concerned about how the costs of service departments are being assigned to the Mixing Department.He knows that his department uses support activities entirely different from the other production departments.As a matter of fact, when something goes wrong in the Mixing Department the entire plant has to stop production because of the critical nature of the chemical processing in that department.Several support departments, such as maintenance and clean-up stop whatever they are doing and come to help the Mixing Department.However, it appears that the Mixing Department is not assigned any additional support costs because all support costs are assigned on the basis of actual outputs.Required:
Explain the methods available for the allocation of costs from one department to another.Which method would you recommend for this company and why?

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Definitions:

Mean Absolute Deviation

The average of the absolute differences between each data point in a set of values and the mean of that set.

Sum of Squares

is a statistical technique used to measure the dispersion or variation within a data set, calculated by squaring the differences from the mean and summing them.

Regression Trend Line

A graphical representation in statistics that shows the relationship between two variables and forecasts trends and future values.

Exponential Smoothing

A time-series forecasting method for univariate data that applies decreasing weights to past observations.